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SQ, FORR, and SOFI: Financial Stock Buy, Hold, or Sell?

The popularity of digital financial services and the integration of emerging technologies are expected to drive the growth of financial services companies. Moreover, the high interest rate environment will boost the industry’s profitability in the near term. Given the favorable industry trends, we evaluate the fundamentals of Forrester Research (FORR), Block (SQ), and SoFi Technologies (SOFI) to determine the best investment option from this space. Read more…

The financial services industry is well-positioned to gain amid the rise in corporate and consumer spending and the growing penetration of digital financial services. The industry is also known to benefit in a high-interest rate environment.

Considering this backdrop, Forrester Research, Inc. (FORR) could be a solid portfolio addition now, while keeping Block, Inc. (SQ) on one’s watchlist could be wise. On the other hand, I think SoFi Technologies, Inc. (SOFI) is best avoided now, given its weak fundamentals.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the financial services industry is expected to perform well in the upcoming quarters.

The financial services industry provides services to individuals, non-profits, governments, and corporations. The industry includes banks, lenders, insurance companies, etc.

Thanks to the growing Internet usage worldwide, digital financial services have gained prominence. The growth of digital financial services has completely changed how people save money, transact, avail credit, etc. Digital financial services include digital payments, alternative lending, easy credit, and on-demand money transfer.

Moreover, the high-interest rate environment benefits the financial services industry as it helps them raise their profit margins. Moreover, with the integration of new technologies such as artificial intelligence and blockchain, financial services are expected to improve even further.

The financial services market is expected to grow at a CAGR of 7.4% to reach $33.31 trillion by 2026. Post 2026, the market is expected to grow at a CAGR of 6.3% to reach $45.15 trillion by 2031.

Amid the industry trends, let’s evaluate the featured stocks.

Stock to Buy:

Forrester Research, Inc. (FORR)

FORR operates as an independent research and advisory company. The company operates in three segments: Research, Consulting, and Events.

Its 0.97x forward Price/Sales is 27.5% lower than the 1.34x industry average. Likewise, its 1.01x forward non-GAAP PEG is 39.3% lower than the 1.66x industry average. Also, its 8.43x forward EV/EBIT is 44.9% lower than the 15.31x industry average.

For the fiscal third quarter ended September 30, 2023, FORR’s adjusted income from operations came in at $12.26 million. Its adjusted net income stood at $8.57 million. Also, its adjusted EPS stood at $0.44.

Street expects FORR’s EPS for the quarter ending March 31, 2024, to increase 18.5% year-over-year to $0.32. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 1.5% to close the last trading session at $24.18.

FORR’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #5 out of 101 stocks in the Financial Services (Enterprise) industry. It has a B grade for Sentiment and Quality. Click here to see the additional ratings of FORR for Growth, Value, Momentum, and Stability.

Stock to Hold:

Block, Inc. (SQ)

SQ creates tools enabling sellers to accept card payments and provides reporting, analytics, and next-day settlement. The company offers hardware products, including Square Register, Square Terminal, Square Stand, Square Reader, and Square Reader for magstripe. It also provides commerce products, including Square for Restaurants, Square Appointments, etc. It also provides a Cash app.

In terms of forward non-GAAP P/E, SQ’s 33.21x is 252.3% higher than the 9.43x industry average. Likewise, its 22.89x forward EV/EBITDA is 110.4% higher than the 10.88x industry average. Its 2.12x forward Price/Book is 99.9% higher than the 1.06x industry average.

On the other hand, its 1.79x forward Price/Sales is 23.2% lower than the 2.33x industry average. Likewise, its 1.75x forward EV/Sales is 43.6% lower than the 3.11x industry average.

SQ’s total net revenue for the third quarter ended September 30, 2023, increased 24.4% year-over-year to $5.62 billion. Its adjusted EBITDA increased 45.9% over the prior-year quarter to $477.49 million. The company’s gross payment volume (GPV) rose 10.5% year-over-year to $60.07 million. Its adjusted net income increased 30.9% over the prior-year quarter to $346.15 million.

On the other hand, its non-GAAP operating expenses rose 14.4% year-over-year to $1.44 billion. Its hardware revenue declined 2.4% year-over-year.

Analysts expect SQ’s EPS and revenue for the quarter ended December 31, 2023, to increase 160.9% and 21.1% year-over-year to $0.57 and $5.63 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 61.7% and declined 17.3% over the past nine months to close the last trading session at $63.43.

SQ’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system.

Within the same industry, it is ranked #67. It has a C grade for Value. To see the other ratings of SQ for Growth, Momentum, Stability, Sentiment, and Quality, click here.

Stock to Sell:

SoFi Technologies, Inc. (SOFI)

SOFI provides various financial services. It operates through three segments: Lending, Technology Platform, and Financial Services. The company offers lending, financial services, and products, allowing its members to borrow, save, spend, invest, and protect money. It also offers personal loans, student loans, home loans, and related services.

In terms of forward Price/Sales, SOFI’s 3.41x is 46.1% higher than the 2.33x industry average. Likewise, its 1.39x forward Price/Book is 30.8% higher than the 1.06x industry average.

For the fiscal third quarter ended September 30, 2023, SOFI’s net loss widened 259.4% year-over-year to $266.68 million. Its loss per share widened 222.2% year-over-year to $0.29. The company’s comprehensive loss widened 244.3% year-over-year to $260.97 million. Also, its total noninterest expense rose 61.3% year-over-year to $804.14 million. In addition, its total noninterest income declined 27.8% year-over-year to $192.25 million.

For fiscal 2023, SOFI’s EPS is expected to remain negative. Over the past three months, the stock has declined 16.6% to close the last trading session at $7.29.

SOFI’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system.

It is ranked #96 in the Financial Services (Enterprise) industry. It has an F grade for Stability and Sentiment and a D for Value and Quality. Click here to see SOFI's other ratings for Growth and Momentum.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >


SQ shares were trading at $64.09 per share on Friday morning, up $0.66 (+1.04%). Year-to-date, SQ has gained 1.99%, versus a 20.66% rise in the benchmark S&P 500 index during the same period.



About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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